If you live in Africa, the chances are that you may have encountered the unpleasant experience of taps not running, or erratic electricity supply or terrible roads network. These everyday frustrations engage the attention of almost everybody, such that other stories fails to get prominence. Moreover, the persistent re-occurring of the challenges overshadow otherwise good stories the continent occasionally records. One such good news is the operationalisation of the African Continental Free Trade Area (AfCFTA) which took place in Niamey, the capital of Niger on the 7th July 2019 after Nigeria – Africa’s largest economy – signed on to the pact.
For Ghanaian, the joy is in two-fold. Not only are Ghanaian celebrating the operationalisation of AfCFTA, but also Ghana won the bid to host the secretariat of the arguably, the most significant attempt in history to bring Africa closer to itself through trade. The ramification effects on the economy of Ghana are anticipated to be extraordinary as we formalise the economy to take advantage of the free zone. New jobs will be created, economic growth will improve, and also it will put Ghana back on the map of Africa. This is the first time, Ghana will host a continental level institution, despite its pioneering role in the liberation struggle of Africa.
The AfCFTA is the world’s largest free trade area covering 55 countries with a population of circa 1.2 billion and a Gross Domestic Product (GDP) of $3.0 trillion (5 percent of global GDP). In terms of trade volumes, AfCFTA is not the biggest in the world. The elsewhere Trans-Pacific Partnership (TPP) which cover twelve (12) countries from different continents with a population of 800 million, was envisioned to be the largest trade deal ever. The TPP had combined GPD of 40 percent ($28.0 trillion of global GDP). Following the withdrawal of the US from the pact in 2017, the TPP morphed into the Comprehensive and Progressive Trans-Pacific Partnership (CCTPP) with a global GDP share of 13.3 percent ($10.6 trillion) for a population of 500 million. The European Free Trade Association (EFTA) of the EU and the North America Free Trade Agreement (NAFTA) are other equally important free arrangements.
The AfCFTA is expected to lead to total elimination of tariffs and non-tariffs (often country-specific) hurdles in intra-regional trade and bolster trade among Africans from the current low of 16 percent to over 60 percent by 2022 and also increase Africa’s share of global trade. It is expected to spur Africa to a greater height and also boost innovation and competition on the continent. Welfare gains from cutting back tariffs in intra-African trade are projected to be about $3.6 billion annually. To achieve this feat, however, require the full operation of free movement of labour and capital with the ultimate goal of creating a truly functioning Continental Customs Union in no distance future. It also requires putting in place measures that enhance harmonisation and coordination of trade liberalisation regimes in the various countries. These painstaking measures are expected to impact the macroeconomic developments as well as wealth re/distribution of the continent. In many instances, the effects of AfCFTA will be positive, especially for the most diversified nations where infrastructure and logistics deficits are minimal.
On the other hand, AfCFTA, just like other international trade agreements, will have negative consequences for the less diversified economies and also those with less or no comparative advantage(s) in any tradable goods/services. Domestic Revenue will plummet in many of these countries, inequality will increase, albeit temporal, jobs will relocate from one part of the continent to the other, among others. For these less diversified economies to maximise gains from the free trade zone would require them to embark on the dual-pronged approach. The first requires of these countries to put in place all the relevant trade policies which will make it easy to trade within the corridor. The second requires that the domestic economies of these less-diversified countries undergo the necessary structural reforms sufficient to increase their participation in the free trade. Through these reforms, it is expected that the competitive position of these countries will be honed and help position them to participate in the pact actively and also benefit tremendously.
However, there are a plethora of specific concerns that ought to be addressed before the operational instruments including; the Rules of Origin; the online negotiating forum; the monitoring and elimination of non-tariff barriers; a digital payments system and the African Trade Observatory gets rolled out. These concerns are non-tariff barriers which could have a significant material effect(s) on AfCFTA. They range from; a) inadequate protocols on standardisation, b) lax regulatory regimes in some countries, c) colossal infrastructure deficits across the continent, and d) an insufficient safety net for those likely to be impacted negatively by the free trade.
Put in place a Safety Net: The first remark relates to the establishment of a safety net (Fund) for those who will be heavily impacted by the free movement of labour and capital. Though free trade creates winners, there are equally genuine losers from trade. However, the net effect of trade in many times are positive, especially when winners are willing to compensate losers. Establishing a safety net under the auspices of the African Union to compensate those countries who will suffer higher job casualties, capital and labour relocation and revenue loses is the way to go. The fund will also support the job and economic reforms/rationalisation that necessarily must take place in the high impact countries. The Fund must be funded and replenished with contribution from the big gainers. The mechanism to determine member countries contribution to the Fund must be commiserate to the size of the individual country’s gains from free trade.
Correcting the lax standardisation: The second area requiring attention relates to the standardisation of goods and services. Here, the interest hinges on the need to develop standards for goods and services produced in Africa. It entails the adoption of a unified standardisation policy, which also assures of the quality as well as the correct measurement of goods and services to be traded. It requires the institution of a Harmonised Standards and Conformity Assessment Systems across the countries of the continent while instilling international metrological standards over time. The central goal of standardisation is to enhance the ease of trade, development and integration of the continent. There must be frequent monitoring of the standards to guarantee effectiveness and also ensure compliance by all member countries. The end game, for instance, should be that good manufactured in say Ghana must meet the required standard of say Nigeria or Egypt or Rwanda. In the same way, vehicles assembled in South Africa and Tunisia should be of the standards permissible under Chad’s or Benin’s laws. The long term goal is to have a situation where goods/services produced in one place is accepted everywhere on the continent and even beyond the continent.
Educating the Continent on AfCFTA: The third issue relates to educating citizens of the continent on AfCFTA. The continent, throughout its history, has suffered many trade tensions among countries. In some instances, these trade rifts have been bloody and chaotic and xenophobic. The tensions over trade often are a result of fear by nationals (locals) that foreigners are depriving them of job opportunities. These tensions are not expected to attenuate soon since the number of jobs created each year in Africa does not meet the over 2o million young people seeking for jobs each year. The recent tensions witnessed in Kumasi over alleged Nigerians participating in the retail sector bear testimony to what could happen under a fully deregulated trade regime. Without providing education on the continental Area FREE trade to citizens of the individual countries, implementation of this laudable policy could be dealt a heavy blow. Citizens must know the benefit of the free trade to their respective countries and the costs of such policy and who suffer the greatest from such a policy.
Establishing baseline data: Equally important is ensuring that base-line data exist for all the participating nations in other to be able to measure the impact of pact accurately. It is undeniable that data procurement and the management thereof is weak in Africa. It, therefore, becomes essential for the participating countries to establish and resource institutions responsible for the management of Government data to be able to produce fairly decent data which then will be used to determine the impact of the pact on all citizens of the continent.
In concluding, it is essential that I stress the significant benefits to come from AfCFTA to the economies of the individual countries and the continent as a whole. AfCFTA is good news for the continent. It will speed up the integration of the continent and increases the collective bargaining position of the continent, especially for goods and services the continent has a comparative advantage over. We, however, must equally be interested in the deleterious consequence of free trade on jobs, revenue loses, and inequality in less diversified countries and put in place measures that could ameliorate such impacts. Provision of safety net and training support to ensure seamless worker mobility will increase the credibility of AfCFTA.
Article by Henry Kyeremeh | Economic Director| iWatch Africa